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Analytical Framework for Credit Portfolios

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  • Mikhail Voropaev

Abstract

Analytical, free of time consuming Monte Carlo simulations, framework for credit portfolio systematic risk metrics calculations is presented. Techniques are described that allow calculation of portfolio-level systematic risk measures (standard deviation, VaR and Expected Shortfall) as well as allocation of risk down to individual transactions. The underlying model is the industry standard multi-factor Merton-type model with arbitrary valuation function at horizon (in contrast to the simplistic default-only case). High accuracy of the proposed analytical technique is demonstrated by benchmarking against Monte Carlo simulations.

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  • Mikhail Voropaev, 2010. "Analytical Framework for Credit Portfolios," Papers 1007.5433, arXiv.org.
    • Handle: RePEc:arx:papers:1007.5433
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    1. Masschelein, Nancy & Düllmann, Klaus, 2006. "Sector concentration in loan portfolios and economic capital," Discussion Paper Series 2: Banking and Financial Studies 2006,09, Deutsche Bundesbank.
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